Optimism usually abounds at the beginning of a new legislative session with a new governor, but this year it was cut short when the state's fiscal condition was revealed to budget writers.

Money is scarce, and state revenues may provide even less than in the current biennium. That is a real problem when both a majority of Democrats and Republicans want to restore some of the money cut last session from higher education and from funding for the state's largest hospitals to help with uncompensated care.

Gov. Maggie Hassan cautioned in her inauguration speech the state could not do everything at once.

To restore funding to the university and community college systems and the large hospitals to previous levels would cost more than $200 million over the next two fiscal years.

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ANOTHER FACTOR: State employees are expecting a pay raise after going four years without a general increase and the last two without a step increase.

Senate Republicans and Democrats want to help businesses by increasing the tax credit for research and development from $1 million to $2 million a year. The House is not sold on the idea just yet, but probably will be because Hassan wants it.

Parents who had youngsters in the Children in Need of Services program want it restored, and mental health advocates say the state needs an additional $38 million over the next two years to address its mental health woes.

At the same time, the last Legislature reduced the cigarette tax by 10 cents a pack and established a business tax credit for an education scholarship program that will reduce revenues by $2 million a year or more. Lawmakers also prohibited taxing Internet access under the telecommunications tax, which costs the state an estimated $12 million annually.

Last year, lawmakers made changes in business taxes and the interest and dividends tax that will reduce state revenues in the next two years by at least an estimated $60 million and may well be $10 million a year higher.

And the Medicaid Enhancement Tax hospitals pay on patient services that used to be returned as uncompensated care aid was $34 million less than anticipated for the 2012 fiscal year, and it will likely be about that for the current fiscal year. There is no reason to expect that to change going forward.

The Center for Public Policies Studies expects revenues to grow by 1.7 percent in 2014 and 2.1 percent the year after. That translates into about $130 million in new revenue over the next two years, not a robust figure.

Revenue is not the only problem budget writers face. The state is likely to have a deficit this year and for the biennium.

The Medicaid Enhancement Tax issue is currently responsible for much of the shortfall in revenues this fiscal year.

The state reached agreement with the federal Center for Medicaid Services over the misuse of Medicaid funds dating back to 2004 that will cost the state $17 million this year. Another settlement with children services providers will cost the state about $3 million, and another Medicaid problem with school transportation will cost the state $2.5 million.

And then there are projected savings built into the budget that will not materialize, such as $16 million by implementing a managed care system for Medicaid patients that has yet to begin, and changes to the state retirement system that did not save $7 million.

Unbudgeted expenses also contribute to the shortfall, including $5.3 million for charter schools, $1.7 million for the judicial branch and $3.6 million for the state's match for Federal Emergency Management Agency disaster funds.

Legislators passed bills that will cost the state this year $3.8 million that was not in the budget passed nearly two years ago, such as capital expenses for the McAuliffe-Shepard Discovery Center before the state turns it over to a nonprofit organization to run.

When everything is balanced out, the state could have a projected deficit around $25 million to $35 million at the end of the fiscal year, in June.

That deficit will have to be made up during the next two-year budget cycle, so that just adds to the misery.

The other elephant in the state's living room is a crumbling highway system in dire need of repairs. The state's turnpike system benefited greatly from federal stimulus money, but the other roads and bridges did not, and it is shows with the number of red-listed bridges growing by leaps and bounds and the quality of secondary roads falling considerably.

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WHERE TO GET THE MONEY: There is only one easy source of new money, and nobody would have to vote for a tax increase. When the tobacco tax was cut two years ago at the insistence or then-House Speaker William O'Brien, the Senate negotiators insisted on a provision that the tax would return to its prior level if it had not met projections, which it has not.

So in August, the tobacco tax will return to its former rate of $1.78 a pack, which will produce about $20 million in new revenue.

After that, the going becomes a lot tougher.

Hassan and key senators want to see "one, high-end, highly-regulated casino" along the Massachusetts border.

What that casino would produce in state revenue is an open question. Budget writers know they cannot realistically expect much more than the license fee, which will likely be in the $40 million to $50 million range for the upcoming budget.

How much state revenue the casino will produce after it begins operations is another issue. Supporters have said it could top $100 million, but Steve Norton, executive director of the Center for Public Policy Studies, told the House Ways and Means Committee that state revenue when social and enforcement costs are subtracted will be about $50 million, and less when Massachusetts has three casinos rolling the dice.

Under the proposed casino legislation, revenue would provide funds for education, Interstate 93 expansion and other highway projects, and money for host communities.

The problem is the House has repeatedly shot down expanded gambling proposals over the years, as recently as last year.

Another significant revenue raiser is being proposed by House Public Works Committee Chairman David Campbell, D-Nashua, and former House Finance Chairman Ken Weyler, R-Kingston, among others. The plan contains a 12 cent increase in the gas tax — implemented over three years in 4-cent increments — and a $15 increase in car registration fees, also over three years and in $5 increments.

The money would be used to finish the I-93 expansion project and go into a dedicated fund to repair the state's crumbling roads and bridges and help local communities with their infrastructure needs.

The proposal is already meeting resistance in the Senate.

Morse said last week there are better ways to raise the $147 million the gas tax and registration increases would produce, such as expanded gambling.

"We can't tax and spend our way out of this," Morse said. "That is not the answer."

There are other proposals such as a 10 cent increase in the beer tax that Hassan shot down last week, and several income tax plans, all of which have no chance of passage.

So the fight is on, gas tax and registration fees or gambling.

But the real questions are: Will that be enough, and will it come soon enough?

"The Fiscal Committee bypassed the budget process to spend $93 million without a single word of public input," said Rep. Josh Moore, R-Merrimack.

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